Don’t Buy Bankrupt Companies Like Revlon – Do These 2 Things Instead

By TradeSmith Research Team

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No matter how much discipline we have, we’re all guilty of making emotional decisions that cause us to later ask ourselves, “Why did I do that?”

Like eating an extra piece of birthday cake because it tastes delicious but regretting it shortly after when you start to feel sluggish.

Or having a night out and overindulging in your favorite wine, spirit, or craft beer and waking up the next day with a headache and nausea.

Or buying another suit or dress that you don’t really need and later wishing that you’d spent that money on something more practical.

It happens to everyone… and it happens with investing.

One of the most recent examples is with the beauty company Revlon Inc. (REVRQ).

Revlon announced it was going bankrupt in June, and it became a favorite of social media investors who speculated about a short-squeeze situation, as the stock price opened at $3.87 on Oct. 13 and climbed 45% to an intraday high of $5.64.

On Oct. 13, 14 million shares were traded, compared with just 137,827 shares two days earlier. That unfortunately is an indication that emotions got the best of folks: They saw the stock price going up, didn’t know why it was going up, and just jumped into the frenzy because they didn’t want to miss out.

Since then, Revlon has been delisted from the New York Stock Exchange (NYSE), and it is now trading on over-the-counter markets for $1.50 per share.

For anyone who bought shares recently, this is likely one of those reflective moments of, “Why did I do that?”

Again, we’re all human and make mistakes.

And while we won’t be there to dissuade you from eating that extra piece of cake, the team at TradeSmith is on your side in the investing world, arming you to have fewer of those “Why did I do that?” moments.

Let’s start with being a real investor.

Be a Real Investor

There’s a frequently used investing phrase — we’ve all heard it — that “things are different this time.”

We hear that line when investors want to justify speculative excesses or give themselves permission to buy junk and ignore proven rules of accounting, valuations, or metrics like sales, profits, and cash flow.

This is all just a part of human nature.

We let emotions overtake us, thinking about the possibilities of potential windfalls or doubling down on something in the hope of breaking even.

Again, we’re emotional beings, so there will always be that devil on our shoulders that can blind us to making rational decisions.

Like with recent Revlon investors…

Why would you buy shares of a company that is going bankrupt?

When you have that feeling that you may be on the verge of making an emotion-based decision with your hard-earned dollars, there are a few tips to remember.

You don’t throw darts to randomly choose an investment.

You don’t just invest in stocks; you invest in the businesses behind them.

And if you follow these five other tips, you’re taking full control of your financial success.

Start Your Morning with TradeSmith Daily

Although looking at the highs and lows of stock prices over the past year can give you a queasy feeling as if you’re on an actual roller coaster, history shows that it pays not to sit on the sidelines when things get tough.

A Bank of America Corp. (BAC) study of the S&P 500 found that it pays to stay in the markets over the long haul.

DecadePrice Return

And with so much noise out there, our team is here to help you tune it out and focus on what matters.

Like with our Special-Situation Central issues:

And with Senior Analyst Mike Burnick’s analysis of moneymaking opportunities in the coming “commodity supercycle”:

And with Mike’s report on what stocks you should steer clear of heading into the new year:

And with any of our TradeSmith Daily issues that break down recent market events:

So even though uncertainty can make you want to throw in the towel, don’t.

We’re in your corner to help you navigate any type of market.